The world is experiencing the first global energy crisis, thanks to a chronic lack of investment in ensuring supply meets growing demand amid the transition to a net-zero emissions future, according to the vice chairman of family-owned holding company Crescent Group.
This crisis is playing out “across the entire world and all forms of energy. And that has never happened before”, said Majid Jafar, who is also the chief executive of oil and gas company Crescent Petroleum, which started the group more than 50 years ago.
“The big challenge is how to achieve what's called the energy trilemma, which is affordability and availability, as well as sustainability,” Mr Jafar told the Business Extra podcast show.
“It is like a three-legged stool. If you neglect any one of the three, the stool collapses. And, unfortunately, now looking at the world overall, we are actually failing on all three.”
There have been sharp price increases, risks of blackouts in Europe and elsewhere, and this has led to more coal being burnt, he said.
While short-term issues such as Ukraine, Covid-19 and stretched supply chains, as well as China consuming more gas, have made the situation worse, a failure to invest has chiefly created the crisis.
“There is a deficit in investment of about $200 billion to $300 billion annually, just in the oil and gas sector,” said Mr Jafar, who is board managing director of Dana Gas, a publicly listed natural gas producer, in which Crescent was the founding shareholder.
“And there is a lack of sufficient investment in other sectors like nuclear, and also renewables.”
There has been a misunderstanding within the net-zero agenda, he said.
“Somehow, it got misconstrued that we don't need oil and gas any more. Nobody actually said that. But the message went to the financial markets, you shouldn't be funding this any more, or you don't need to be funding this any more,” said Mr Jafar, who worked previously at Shell.
Many institutions, including banks such as HSBC, say they are no longer financing new oil and gas projects amid criticism from shareholders and activists over climate action.
“And fundamentally, climate change is about emissions, not starving energy; it is about trying to achieve the energy you need with reducing emissions. And to just starve the supply while the demand keeps growing doesn't make sense because, ultimately, climate change is demand driven,” said Mr Jafar.
The energy transition’s success will depend less on developed economies, he said.
“The developing world is where this whole challenge is going to be won or lost … It is where the growth in demand is for energy. Because that is where the economic growth is, the population growth is,” Mr Jafar said.
There is a credibility issue at play too, according to Mr Jafar.
Developing countries have “seen the problems caused by developed economies, including inflation, thanks to loose monetary policy, the block on investments in energy [and also] vaccine hoarding during Covid-19 pandemic”, he said.
However, progress in the conversation about loss and damage from climate change has been helpful.
“The language of reparations is what we saw at Sharm El Sheikh [during Cop27] and there was some agreement on a way forward although concern and reticence from many of the richer countries about that new dialogue … But it is a development issue,” said Mr Jafar.
“The countries that don't yet have the economic development are the ones that are going to suffer the most from climate change.”
Contrasting the approach in the region with that of Europe, he said it was apt that Cop 27 was held in Egypt “and, of course, everybody is looking now to Cop28 here in the UAE next year”.
“A lot of western countries, developed countries, just put a target out there, you know, net zero and 2050, or whatever, with no plan. Whereas by contrast, the UAE actually had an energy plan for 2050, even before its net-zero target for 2050.
“And, as it has been said, you know, a goal without a plan is just a wish or a dream. And that is what has been lacking … we are not going to get there just by having a net-zero target. And then the demand keeps growing. And there is actually been a starving of investment in the supply,” he said.
With half the world's oil and gas reserves and huge potential in areas such as solar, the Middle East region “is going to play a larger and larger role across all the types of energy” over the next few decades, said Mr Jafar.
Crescent Petroleum has a presence in the UAE, Egypt, Pakistan, Yemen, Canada, Montenegro, Tunisia, Argentina and Iraq.
Since its formation in 1971, Crescent “has expanded from its oil focus in Sharjah at the start to become a regional producer in Iraq and Egypt also, with 85 per cent natural gas”, said Mr Jafar.
The role of gas in the energy transition is important, he said.
“The gas [Crescent] produces — by displacing diesel for power generation in this region — avoids more than 5 million tonnes of CO2 [carbon dioxide] emissions annually … more than all the Tesla cars on the planet,” Mr Jafar said.
While oil and gas are still going to be needed, “the way we produce it needs to be cleaner, we need to decarbonise it, in essence, and also the way we consume it is going to be different”.
“We looked at how can we minimise our emissions … [gas] flaring [is down] to nearly zero and then we offset the remainder with carbon credits … to achieve and declare net-zero carbon across our operations a year ago. And that is something we intend to maintain,” he said.
Despite the challenges, including political difficulties, the consequences of conflict and corruption, the potential for Iraq — where the company has been operating for 15 years — is “huge”, in particular, in gas.
“[Crescent] has invested over $2.5 billion in the oil and gas sector. Our main focus has been in the Kurdistan Region and gas. But we also hope to soon sign contracts with the federal government … and we could do similar for the central Iraq and also southern Iraq,” Mr Jafar said.
It is a “tragedy” that Iraq still cannot provide more access to reliable electricity, he said.
“On the energy side, there is still more investment that is needed in water treatment and infrastructure. And the electricity provision really needs addressing, because it is a tragedy that Iraq still doesn't have good electricity provision, and it is holding back the overall development,” he said.
Mr Jafar said there was some hope for reform under new Prime Minister Mohammed Shia Al Sudani.
“With the new government that has been formed of better relations between Baghdad and Erbil, and they have been generally good in the wider region, Iraq has been, you know, hosting talks even between Saudi Arabia and Iran and Baghdad,” he said.
“But absolutely, the domestic economic reform agenda is necessary [for] tackling corruption and services. These are the key things that the Iraqi people want to see.”